Reading James Grant on Spore, 1989

Westward winged the jet across the wide Pacific. Eastward lagged the body. The destination was Singapore, that Switzerland by the equator, mecca of thrift and orchids and humidity, a city-state even less accessible than Fargo. The flight from New York took twenty-two hours, or rather the flight of the aircraft took twenty-two hours. The body, unkempt and feeling sorry for itself, straggled in later.

The purpose of the trip was to deliver a lecture on finance, but a glance at the local papers suggested that the visitor had more to learn than to teach. The interest rate situation, for starters, seemed just about perfect. Prime rate: 5.5 percent; thirty-year mortgage rate: 5.75 percent; five-year auto loan rate: 4 percent; five-year “business loan” rate, 7 percent. The ninety-day Treasury bill was quoted as 3.25 percent, and the five-year government note yielded 5.5 percent. Stocks changed hands at about twenty times earnings.

Other economic vital signs appeared in order. The warehouse occupancy rate last year was 93 percent. The consumer price index rose by less than 2 percent, and economic growth was a steamy 11 percent, up from 8.8 percent in 1987. […]

It goes without saying that, if the government wishes to undertake a certain course of action, that policy is necessarily wise and just, whatever it may be, but the ambition to create a local government bond market seemed a mystery. […] The Monetary Authority of Singapore (MAS), the national central bank, contends that the market will serve as a useful benchmark for pricing public corporate debt. It will provide a safe and handy investment for Singapore’s banks and savers and “a means of hedging interest rate risk.” It will help propel the city-state into the first ranks of world financial centers. […]

Probably not every Singaporean will rush out to lock in 5.5 percent in government bonds. Cab drivers play the stock market, and DBS Land recently changed hands at 109 times earnings. […] Also, it must be stated for the record that the Singaporeans put their pants on one leg at a time. There was a recession as recently as 1985-86 — a salutary reminder that, even in a land that has apparently attained nirvana, cycles turn.

-James Grant, Singapore Fling.

Some things have changed since Grant’s visit in 1989, especially the numbers.
But some things remain the same. And the cycles continue to turn.

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2 thoughts on “Reading James Grant on Spore, 1989”

More from Grant, touching on the actions/intentions of the Sporean central bank:

However, perhaps the most un-American aspect of Singapore’s finance is the balance sheet of the central bank. The MAS does not monetize government debt. Its principal asset is gold and foreign exchange. There is hardly a trace of domestic government securities on its books. By way of contrast, the principal asset of the Federal Reserve is U.S. Treasuries. Thus, the Fed is a study in circularity: Its assets comprise debt, that is, government securities. Its liabilities comprise Federal Reserve notes, that is, currency. The Federal Reserve’s promises to pay–that is, its “notes”–are secured by the Treasury’s promises to pay, that is, its notes (and bills and bonds). One promise offsets the other, although what the Fed is promising its noteholders, even tacitly, is not very clear. Under the gold standard, a dollar bill was convertible into gold. Under the current free-form standard, a dollar is convertible into nothing; nowadays, everyone may run his own gold standard as he sees fit. Singapore, too, is on a paper standard, but the assets of the central bank are qualitatively better than those of the Fed. They are the assets of a central bank that has somehow not gotten the word that anything goes in the 1980s. The city-state’s finances must be viewed in composite form, the visitor was advised. Lumping together MAS with the Board of Currency Comissioners and other official financial bodies reveals roughly the following: gold and foreign securities (the state’s assets) offsetting pension and savings commitments to the citenzry (the liabilities).

Some things never change.
Be it 1989 or now, for a visiting economist or the local constituents; the powers that be have always maintained and revealed little more than that opaque picture, “viewed in composite form”.
One only hopes that Grant’s previous assessment of “the assets of the central bank are qualitatively better than those of the Fed” remains valid today.